TOKEN2049 - The Bitcoin Standard by Saifedean Ammous

my talk today is going to summarize some of the main ideas in my book the Bitcoin standard and I'm going to try and keep the talk as quick as possible so that we can have more and more time for discussion because generally these tend the discussion tends to be a richer part of the talk so in brief what I'm going to be discussing today is why I think bitcoin is unique what bitcoin is good for and what are the implications are continuing to have a form of hard money that is similar to Bitcoin on various levels so in a very brief summary of the first few chapters of my book why is it the Bitcoin matters in my opinion it matters because it is hard money or what I mean by that is the to understand the dynamic we think of it this way anything can basically be used as money anybody can hold anything and use it as a medium of exchange but then the anything that same thing can be produced in increasing quantities which will bring down the price and therefore make it not very good as a store of value so therefore the anything that is easy to make ends up being not very useful as a form of money and only things that are hard to make ended up succeeding in the long run is form of money and mana the first few chapters of my book get into this in detail those of you who are interested can not read it there it's bigger so if we look at examples historical examples of money we find that anything that's chosen as money at any point in time ends up being chosen because it is hard to make at that instant so we'd look at Bitcoin if this is true then this is it matters for Bitcoin because if you look at Bitcoin supply we see that the supply increases at a decreasing rate and then stabilizes at 21 million and the supply growth rate continuously increases until it approaches 0 asymptotically and they then eventually the the supply growth goes to zero so the uniqueness of Bitcoin as a form of money reading is the fact that with every other form of money the fact that it gets chosen as money will increase the desire for people to produce more and more of it which is going to increase the supply of it and bring the price down except with Bitcoin no matter how many people use Bitcoin the supply of Bitcoin is fixed the supply growth rate is going to be fixed and this is this is very different than anything else we've seen in other words if tomorrow 5 people around the world are using Bitcoin only the new supply of bitcoins that will be minted tomorrow is gonna be about 1800 coins on the other hand if 5 million people or 5 billion people are using Bitcoin tomorrow still the new supply of bitcoins that is going to be made is 1,800 the fact that supplies completely irresponsive and unrelated to the demand is something absolutely unique to Bitcoin amongst all monetary assets and that for me I think is the most important aspect of it and from it come all of the interesting economic ideas behind Bitcoin the reason really if we want to understand why Bitcoin has gone up for so long and you know people say Bitcoin as a bubble but Bitcoin has gone up about 3 400 or 3040 million percent in about 10 years in less than 10 years of trading since it started trading sisters accrued any economic value it's gone up by that much that's never there's never been a bubble like this nothing that's a bubble increases but these insane amounts of it used to do so so how can we understand it for me we cannot understand it outside of understanding bitcoins hardness in other words this cycle that I write described in in my book which is what differentiates Bitcoin from every other kind of money if you look at any other kind of money if store of value demand increases the price rises mining that money or printing more of it for in the case of government money makes it becomes more attractive that increases the supply which causes the price to drop in Bitcoin instead of the supply increasing we don't get more supply increasing because the supply is fixed because of the dynamics of how mining works which unfortunately I don't really having time to get into right now but you can read about them in my book because of the way mining works with Bitcoin if more money goes into Bitcoin and more demand goes for Bitcoin and the price rises and mining is more attractive we don't get an increase in the supply of Bitcoin we get an increase in the harsh power that goes into this which effectively makes the network more expensive to attack which effectively means Bitcoin survives longer and continues to operate successfully and safely which increases the store of value demand for it which raises its price this is really I think the the economic incentive feedback loop that the Satoshi Nakamoto put into is called and there has been functioning for the past ten years and really seems to be strong enough stronger than any of us really we have no choice but to submit to it because it just feeds in very well to humans economic incentives it's just it's Bitcoin is such a well-oiled economic incentive machine that is constantly giving the world incentives to keep feeding it with the things that continue to make a prime and continue to make it secure how secure is Bitcoin the processing power to run Bitcoin is about seven trillion times of that in your laptop which is an enormous amount of processing power given that it makes only half a million transactions you could run the same number of transactions on your own laptop but the difference of course with Bitcoin is that we do it without having to trust you or without having to trust your laptop it's a completely automated system that relies on nobody the key thing about why Bitcoin functions and again I'm skipping over the technical details here which you can read in the book but the I'm trying to get to the economic implications is there's no single point of failure in Bitcoin there's no single piece of critical hardware or infrastructure for Bitcoin to continue operating there's no single critical individual or organization that Bitcoin needs and Bitcoin effectively can't be stopped anyone who wants to join the network just needs a device that can send that can receive around one or two megabytes of data every 10 minutes and that doesn't even need to be an internet-connected device now and with this economic incentive system it is never we've never had one bad transaction one fraudulent transaction get confirmed in ten years which is an astonishing security record so we have the hardest money that's ever invented it's available worldwide for anyone who can receive basically two megabytes of data every 10 minutes it's purely voluntary it does not need regulation or enforcement or police and most interesting name perhaps it's chosen freely on the MA it's gained its value on the market nobody forces anybody to use it as a monetary system and yet people freely choose to pay with it which is the definition that Austrian school economists like to give for sound money it's money whose value is one on the market and determined between the people who carry out the exchange it's not money that is enforced by government that's really I think a very interesting thing about it so with this description of the basic economic infrastructure of Bitcoin what is Bitcoin good for the first thing I think the obvious thing is that it is good as a store of value because it is as I mentioned earlier the first strictly school scarce liquid asset that we have in other words the supply can never be increased which is unique for all other kinds of resources that we have physical resources the limit on how much we can have of each one of them is never actually how much of them exists in the crust of the earth which is why for millions of years we've been digging in the earth and we've never run out of any actual metal that exists in earth the reason for that is that metals the abundance with which we produced them is not about how much of them exists it's about how much time we dedicate to producing them compared to other things that's really what determines how much gold or copper or zinc or anything we have and so more demand for copper or zinc or gold or anything is going to lead to an increase in the production of it although that's not true only for one thing and that is Bitcoin it's the first thing that is scarce and one of my favorite books of economics is by an economist called Julian Simon and he it's called the ultimate resource in it he argues that really the only resource that we have is a human time because with human time we can make more of everything else that's why we've never run out of anything and with human time we continue to define and find new technologies and new ways of making things that are more productive and that continues to increase the productivity and continues to increase the value of our time which is the only thing that is really scarce whose value continues to go up over time and so with Bitcoin now we finally have something else that's also strictly scarce something like our time that whose supply can't be increased and so for me that sounds like it is a natural for storing the value of the time they did we do storing the value that we produce with our time really and so this I think this is why I like to call Bitcoin our most advanced technology for transferring the value of time into the future because with every other technology which is what money is money is the technology of transferring value across time money the most advanced way of doing it is the way that suffers the least loss the most efficient way of converting value today into value tomorrow it's always going to be the money who supply is the least inflationary which supply increases the least in the long run and so bitcoin does this with exceptional success so far at least through the economic incentive structure that I've mentioned the earlier and I think this is what makes it such a compelling and interesting economic phenomena because as soon as people start using it as a store of value of course the necessary function that comes along with that is that it has a medium of exchange those two functions are inseparable and so it's necessary if people want to hold that as a store of value of course they're going to want to exchange it and so what we're saying now is the development of a global decentralized system for the transfer of value that is the only viable alternative to global central banks it's the only competition that central bank's face in the world today it's Bitcoin if you want to send money today from Hong Kong to the US or to Canada or to Argentina you have to go through the central bank and through the global central banking authorities of the world and that's just one monopoly entity and there are no alternatives to that there are no legal alternatives for you to do it there are no ways for you to be able to send money abroad outside of the control of the central bank except with Bitcoin now Bitcoin allows us a viable alternative to it so then that brings up the question of does Bitcoin scale can Bitcoin scale in my opinion on as I'll discuss in detail my book Bitcoin is not going to scale as a payment Network bitcoin is going to scale as a settlement network on which second layers will be used for consumer payments so bitcoins inability to support billions of transactions per day is no impediment for bitcoins on chain capacity and and it's not its inability to support million not of transactions birthday is I think no comparison for it because Bitcoin doesn't compete with individual market consumer payments like Western Union or PayPal or Visa payments it concedes most likely with the settlement payments between central banks which are high-value payments that are take a long time to confirm Bitcoin is able to produce these payments and to send the money across the world in about an hour with getting six confirmations which is a very high degree of certainty with it it's an enormous leap compelling competitor for many people for central banks and that's why it's been growing so massively over time what for me is the most interesting implication of hard money is the fact that hard money is incentivizes people to develop a low time preference hard money is associated with people's ability to drop their time preference and time preference which is really the concept that draws me into the topic of Bitcoin the topic of money in general and it's something that I've always been very interested in it refers to the degree to which a person discounts the future compared to the present so everybody's time preference is positive and that everybody discounts the future compared to the present if I offered you something today versus something tomorrow that same thing you would always prefer to take it today because the future is uncertain and you don't know if you're gonna be around tomorrow and you prefer present enjoyment of a future enjoyment so this is of course a natural phenomenon but our ability to hold and store value into the future our ability to develop a store of value allows us to start developing more of a future orientation to start discounting the future lessen us in other words to develop a lower and lower time preference which encourages long term thinking and encourages saving it encourages the you know saving rather than borrowing whereas a higher time preference would would incentivize it spending and borrowing and reading no time preference is what economists Hank Herman Harper says initiates the process of civilizations it's once people start being able to save and think of the future and they begin to accumulate capital this increases our productivity and this it allows us to improve our living standards and this really is what allows us to build a civilization as as a as a structure in which our lives continue to improve generation after generation through technological improvement and capital accumulation and division of labor ultimately time preference is a highly important concept in it now of course here the major criticism you'll hear of Bitcoin is that and money and the money forms of money that are hard like gold is that these things are not good enough because it will cause people to stop spending money and so if we have hard money like Bitcoin or gold everybody's going to want to hold on to their money because the money appreciates in the future and so people stop spending and then if people stop spending the economy stops working and then you know children die and that's why if you hate Witco if you like Bitcoin then obviously you hate children right as if the newspapers always remind us well it doesn't quite work this way because economy does not stop working like the Keynesian want you to believe it people stop spending because people can't stop spending because people need to survive so if you have if you expect that the value of your money is going to appreciate in the future yes you're less likely to spend but it's completely insane and completely doesn't and doesn't and it makes no sense to expect that you would stop spending completely you're not going to starve yourself to death in expectation of waiting for your money to appreciate next year so that you can eat more next year because you're going to die so consumption is necessary we need to consume in order to survive you need a house to live in you need clothes to buy so the effect of it of a rise in the value of money over time or the effect of a drop and time preference it's not going to be the elimination of consumption it's going to be the elimination of useless needless frivolous consumption it's the elimination of people who continue to spend money on useless crap they don't need which you know might sound familiar if you've been alive for the last 20 30 50 years or so it's what we all do we spend money that we don't have on stupid that we don't need and you know because that ultimately has something to do with the fact that money is expected to lose value over time and it can't keep value so people would indeed reduce their spending but they won't eliminate it and my favorite example for this is look at this I'll Drive from 1984 $3,500 10 megabytes why would anybody buy this in 1980 when they could just wait 30 years and buy the same thing for like five cents or 20 cents or something like that why well because for 30 years you could get a lot of value out of this thing and if that value exceeds the $3,500 on the time at which you purchase it you will buy it so the notion that the economy will collapse because people stop spending is obviously nonsensical what happens is people start saving more and that's why as we see with the rise of easy money in the last 50 years with the inflationary monetary policy we see savings rates across the major Western economies continue to decline the one exception of course Switzerland the last country to get off the gold standard and the one with the hardest monetary policy for quite a while so and of course time preference is not just an economic factor it's a fascinating factor that determines all kinds of matters of ways in which we take our economic decisions and so you know and my book I get in depth into the discussion of the gold standard in the nineteenth century and how creative and impressive that the era was and I think it's really hard to separate all of these innovations from the hardness of money and from the time preference aspect of it and to express it you know I could go on with many examples but my favorite example is a picture that speaks a thousand words that's two pictures so that's 2,000 words for you this is your art on hard money when people have a low time preference michelangelo spends four years hanging from the ceiling of the Sistine Chapel to draw this writes a poem about a which is quoted in my book explains just how much of an ordeal and how it destroyed his health to produce this but hundreds of years later and people still travel all over the world to see this this is art today on easy money takes 15 minutes to produce and takes five minutes to acquire the skills needed to learn to produce it and you know people think these are two these two things are the same I beg to differ I think time preference is an important factor to keep in mind in this and in my book I discuss it in more and more detail briefly because I'm running out of time I'm going to I'm gonna skip over the political part and just talk about the capital markets aspect of things the interesting thing about Bitcoin is that from the Austrian economics perspective business cycles recessions unemployment and inflation are effectively consequences of monetary central planning in the same way that if you have the central planning of the market for apples you're going to get shortages and surpluses and failures in the market for apples the same thing happens in the market for capital when central bank's manipulate interest rates you get all of these problems so when the mid the determination of the central of the interest rate is taken out of the hands of the central bank and placed in the into the market where people do determine it through their own interaction we see a much healthier kind of economy and my example for that again is switzer than my favorite example up until the 1970s Switzerland basically have no unemployment because they were on a gold fanger they had no inflation they have no unemployment that's what the economy should be like if you don't have an inflationary central bank this is what normal life looks like we've normalized the idea that inflation unemployment and recessions are just a normal part of life but they're not their normal part of centrally planned manipulated capital markets just like market failures are a normal part of all kinds of manipulated markets and finally the opportunity to have one global neutral monetary standard is truly an intriguing one if you think about it in the long run if it continues to grow it would likely develop it it some kind of monetary system where you know finally we get over the problem of needing to exchange money across political borders which is effectively a system of international barter and it's it's it's one of the worst things that happen in the 20th century that we moved back to a system of partial barter across the world rather than a system of global free trade on one money as was the case in the 19th century on the gold standard submit win allows us to do something like this because it is resistant to government control and inflation in that regard there's more discussion on energy markets but I think I'm running out of time for now if interested in learning more you could find my book it's now out in 13 it's out in five languages and getting translated to total of 13 languages in in Chinese and simplified and traditional Chinese and if interested I'm also producing a monthly research report to which you can subscribe on my patreon and I'm soon going to be producing online courses and lectures and seminars interactive online seminars on Austrian economics and and core content related to Bitcoin that you can sign up for so if you have more interesting learning more about my work these are your resources thank you very much you